[HN Gopher] Where did the other dollar go, Jeff?
___________________________________________________________________
Where did the other dollar go, Jeff?
Author : ezrast
Score : 298 points
Date : 2021-04-28 10:57 UTC (12 hours ago)
(HTM) web link (blog.cloudandtree.com)
(TXT) w3m dump (blog.cloudandtree.com)
| Grimm1 wrote:
| First I clicked on this hoping it was some interesting thing to
| learn, and then I saw it quickly devolved into another Bezos
| rant.
|
| Second what weird quibbling over standard language. I read this
| and feel like I'd prefer to have my time back. "I'm not endorsing
| an ideology" no instead you'll make it painfully obvious which
| one you don't.
|
| "I'm just meeting the claims on their own terms in the pursuit of
| that which I truly value, which is quibbling about math."
|
| And then proceeded to basically do nothing on the math, but argue
| about value creation or consumption.
|
| I'm not stating if I agree or not, don't take this as that, I
| just feel the author was basically misrepresenting their goals in
| the post.
| ezrast wrote:
| For what it's worth, I find this feedback useful, despite the
| downvotes it garnered. I think it's important not to
| misrepresent my biases when I write, and doing that even-
| handedly can be difficult, so if it's not landing with people I
| like to know.
| Grimm1 wrote:
| Yeah sorry I may have been too harsh in my initial reply, and
| really nothing against you in particular, but I did get
| through it feeling a bit angry over it. FWIW, I agree with
| some of your points for sure and disagree with others I just
| felt misled and I think that's why in part I responded so
| harshly.
| lucasmullens wrote:
| No matter how bad an article is, "I read this and feel like I'd
| prefer to have my time back" is sort of just a mean thing to
| say and doesn't contribute to the conversation.
| ct0 wrote:
| The title of the piece includes "Jeff", As in Jeff Bozos. I
| read your comment and would like my time back too.
| Grimm1 wrote:
| It's a bad piece of writing. That offered no value. Every
| business uses the language Bezos used, and it also is very
| much up to interpretation on their view of value creation and
| consumption.
| enragedcacti wrote:
| If me and my two friends buy paintings from each other for
| 1 Billion dollars in a circle, did we create 3 Billion
| dollars in value? No, we created 3 mediocre paintings.
| Bezos (and every other business, as you mentioned) plays
| the same game by double and triple counting and changing
| the definition of value to suit each case. You are right
| that what value means is up to debate; but Bezos here uses
| many different definitions at once to reach his number
| which isn't adhering to any particular ideology other than
| "Amazon good".
|
| I think the most obvious example of this is with the
| workers:
|
| >The most egregious misrepresentation of value creation in
| the letter is the $91 billion figure that Amazon has paid
| out in compensation to employees. This is patently
| ridiculous. Every single dollar of compensation paid out is
| done transactionally: it is used to purchase labor.
|
| > And it estimates the time saved by consumers who shopped
| at Amazon instead of brick-and-mortar stores, and-- in a
| particularly bold move, considering that just a few
| paragraphs ago it ascribed no value whatsoever to the time
| of its own employees-- attaches a dollar value to those
| hours and throws that on the pile as well.
|
| This is a shell game where amazon gets to take credit for
| paying its employees for their hours and also take credit
| for those hours as value.
| onionisafruit wrote:
| It didn't occur to me that the Jeff in the title was Jeff
| Bezos until after I clicked. I probably wouldn't have read
| the article if I realized. That would have been my loss. I
| enjoyed the article.
| mensetmanusman wrote:
| Value is never created in a vacuum. If you could implement an
| idea that leverages 0.01$ of value from 500,000,000 people, you
| have yourself at least a $1,000,000 company.
| Grimm1 wrote:
| We use the exchange of money to approximate value. You won't pay
| me $1,000 dollars for my mousepad, because you don't value it at
| that. Someone around here used a bad example of rigging art
| prices, but the reality is, that painting is now valued at
| whatever 10's of millions of dollars it is regardless of personal
| feelings of mediocrity.
|
| Money is of course not value, and I'm sorry, but that is a
| completely basic statement that I'm surprised to see so many
| people it's just dawning on them now, but it is the tool we use
| to approximate actual value in our transactions, whether that be
| for labor purchase, value passed on to share holders etc. Of
| course it's an approximation with issues, someone define value
| for me? You can't because value is different to everyone but we
| use money to express the value we perceive something to have in
| matters of business.
|
| The writer here doesn't seem to understand basic economics and
| money as a proxy for value, again in business, which seems likely
| and they should probably stay in their lane just like we tell
| other people who write things they know nothing about.
|
| This standard proxy of value is true in every purchase you make,
| your salary, his stock value etc. and it's the standard we use,
| and is it perfect, hell no, but it's worked since the concept of
| exchanging coins in place of cows and barrels of spice came
| around and we haven't seen anything supplant it yet. The fact the
| author is quibbling over semantics to me means there is not much
| of an actual argument being made and everyone here just ate it
| up.
| seoaeu wrote:
| The author directly acknowledges that money can be used to
| measure value:
|
| > I'm going to tacitly accept [...] that "value" can
| meaningfully be expressed in terms of United States dollars
|
| That doesn't mean you can just sum up a bunch of dollar figures
| and have the total make any logical sense. Doubly so when you
| are arguing that the sum represents value you created and not
| just the values of things you interacted with.
|
| Like if a bank teller takes $5000 dollars and deposits it into
| a customer's account, they haven't created anywhere close to
| $5000 because the owner already had it when they walked through
| the doors of the bank. And if you add that number to the bank
| teller's wages and the price of a safe deposit box at the bank
| down the street, you haven't discovered the value of the
| transaction... all you've got is nonsense.
| seoaeu wrote:
| Amusing that the original letter from Jeff Bezos doesn't list
| taxes paid as counting towards value provided to others. For a
| more 'normal' company that would be high on the list of ways
| they're contributing to society. But of course that doesn't work
| nearly as well when you're not actually paying much in taxes...
| bartimus wrote:
| > If I give you an apple and you give me an orange, the total
| amount of fruit in the economy remains constant.
|
| That's not entirely correct. The economy isn't a zero sum game.
| If person A has 2 apples and person B has 2 oranges. They trade 1
| apple for 1 orange. Now they both have an apple and an orange.
|
| The value is increased for both parties.
| ChrisLomont wrote:
| >In a typical transaction, no value is created
|
| This claim isn't true - it completely ignores producer and
| consumer surplus. It adds nothing to the economy, but it adds
| value to both sides of the transaction.
|
| Suppose A and B trade items a and b. This happens because A
| values item b more than B does, and B values item a more than A
| does. So by trading both sides have more value to them than
| originally.
|
| Almost zero trades happen right at the margin.
| lifeisstillgood wrote:
| >>> If I give you an apple and you give me an orange, the total
| amount of fruit in the economy remains constant. We can't create
| fruit by bartering with it. We can only do so by foraging or
| cultivating an orchard.
|
| Isn't this principle the entire Financial industry?
| necovek wrote:
| Heh, also reminds me of all the "piracy lost us this much"
| statements from Microsoft back in the day, and movie and music
| industry until recently (it's now "streaming nets us too little"
| instead).
|
| As if there would have been a guaranteed transaction at sticker
| prices for each and every illegally copied unit.
| seiferteric wrote:
| > Every single dollar of compensation paid out is done
| transactionally: it is used to purchase labor.
|
| This is my gripe whenever I hear about my employer "covering"
| part of my health insurance or other benefit etc... No, I pay for
| EVERYTHING with my labor.
| Pfhreak wrote:
| Including the profit your employer retains -- employers
| necessarily pay you less than the value of your labor.
| dragonwriter wrote:
| > employers necessarily pay you less than the value of your
| labor.
|
| That's not true "necessarily" unless you assume all employers
| are sustainable, in idealized competitive markets, and that
| all of their inputs are also purchased in idealized
| competitive markets such that they don't have monopsony
| savings they can spend on surplus wages without impacting
| sustainability.
|
| Obviously, even with idealized market assumptions, one reason
| an firms fail is paying more total for inputs than the value
| they produce, and lots of firms fail.
| Pfhreak wrote:
| Ok, that's fair, I was painting with a broad brush. I
| acknowledge that yes, employers can pay employees more than
| the value they bring in, but it's likely that doing so
| isn't sustainable long term.
|
| And I dodged entirely around worker coops and other
| arrangements where the excess value is distributed back to
| employees.
| robocat wrote:
| > employers necessarily pay you less than the value of your
| labor.
|
| Untrue. Employers aim for that but they often fail.
|
| The Credit Suisse employees that lost $5 billion due to
| Archegos were overpaid.
|
| Alternatively if I am the only person that can do a
| particular necessary job for a business, I should be able to
| reap the majority of the profits due to my monopoly.
|
| Finally, for some professional jobs productivity is hard to
| measure, yet you may employ many people because in aggregate
| they make a profit. At an individual level, the profit margin
| can vary from negative to positive.
| seiferteric wrote:
| That part is fine and understood when you take a job with a
| for profit company. I just don't like it when employers think
| that are doing you some sort of favor.
| modeless wrote:
| > I'm going to tacitly accept some of Bezos' underlying
| assumptions [...] I'm just meeting the claims on their own terms
| [...]
|
| > In a typical transaction, no value is created. If I give you an
| apple and you give me an orange, the total amount of fruit in the
| economy remains constant.
|
| Right here he has already failed to abide by his assertions in
| the previous paragraph. The transaction in fruit _does_ create
| value because it transfers fruit from people who want it less to
| people who want it more. Improving the distribution of fruit in
| the world is valuable even when the total amount of fruit does
| not change.
|
| The value Bezos is talking about is not the same idea of "value"
| that this guy has in his head. Sure, maybe Bezos is overcounting
| his value. But arguments like the above are just missing the
| point.
| greatgib wrote:
| I think that you did not grasp the concept of "value" that is
| used in the article.
|
| There is a difference between the general "value" and an amount
| of money that pre-exist anyway. In the same way, the "monay
| value you give to something" is not the "value" of the thing.
|
| For example, if you buy 10$ a stock that has a financial value
| of 100$, you had a good deal btut the stock value is still
| 100$.
|
| In the case of the apple transaction, if the price you got the
| apple is 10$, and now the product and conditions are the same,
| but because of the demand some people are ready to buy it 20$
| from you. It was not 10$ of value created but just transferred.
| Someone got a bigger part of money and the other one has less
| money remaining. But the total amount of money stays the same
| globally.
| modeless wrote:
| I think that you did not grasp my point, which is that the
| article claimed to be making a good faith argument accepting
| Bezos's assumptions, but then in the very next paragraph
| started using different assumptions about the definition of
| value.
| JKCalhoun wrote:
| I thought Bezos was attaching a monetary amount ($) to that
| value though -- so pointing out that a fruit swap is zero-sum,
| monetarily, seems on point.
| modeless wrote:
| It's common to quantify value in units of dollars. It doesn't
| literally mean that money was printed.
| paxys wrote:
| Using Amazon's analogy, they exchanged an apple for an orange
| and are claiming they created an apple + orange worth of value.
| Really the value created is (1) the profit, which goes to their
| shareholders and (2) the benefit to their customer of having an
| orange instead of an apple, which is probably measurable but
| not quite as much as what they are claiming.
| kixiQu wrote:
| "Employees' contribution to Amazon is literally zero; they should
| be appreciative of all this Value _we_ generate for _them_ by
| giving them money " is a pretty rough thing to read in that
| shareholder letter, not gonna lie. That insulting of an
| implication could only make it into a final draft in such an
| obvious state if it really reflects how the top people think, and
| that's... rough.
| bombcar wrote:
| If you care more about the dollar than Amazon:
|
| https://www.mathsisfun.com/puzzles/where-did-the-dollar-go--...
|
| >When the Waiter returns 3 dollars, the 3 friends had paid $25 to
| the Cashier and $2 to the Waiter. $25+$2 = $27 = 3 x $9.
| StevenWaterman wrote:
| It clicked for me when I allowed negative balances
| Customers: 0 -30 -30 -27 Hotel : 0 30 25 25
| Bellhop : 0 0 5 2 Total : 0 0 0 0
| [deleted]
| rthomas6 wrote:
| As an aside, this shows the value and reason behind double
| entry bookkeeping. More setup in the beginning, but
| ultimately much less confusing.
| Joker_vD wrote:
| "The bellhop, who is very nice, takes $5 from the register
| and return $2 to each tourist, paying $1 from his pocket--
| the guests don't have to fuss over uneven change that way.
|
| Now, each of the three tourists has spent $8, for a total of
| $24. The bellhop has spent $1, which brings the total to $25.
| Where did the other 5 dollars go?"
|
| "The bellhop, who is very much not honest, takes $10 from the
| register and return only $1 to each tourist, pocketing the
| remaining $7-- the guests don't have to fuss over uneven
| change that way.
|
| Now, each of the three tourists has spent $9, for a total of
| $27. The bellhop has retained $7, which brings the total to
| $34. Where did those other 4 dollars come from?"
| massung wrote:
| This was my first time seeing said puzzle, and when I got to
| the end I instantly was thinking? WTF you need to subtract $2
| to get to the price of the room, not add to try and get to some
| imaginary amount of money spent.
|
| The room is $25. Everyone paid $25 for the room + a $2 "tip" to
| the bellhop.
|
| That said, I'm going to have fun emailing it to my parents. ;)
| jccalhoun wrote:
| When I was a teenager this blew our minds and stumped us for
| days.
| briffle wrote:
| I'm mid 40's, and really glad someone posted an answer,
| because that was starting to drive me nuts :)
| js2 wrote:
| Surely you're familiar with the Monty Hall problem, but if
| not:
|
| https://en.wikipedia.org/wiki/Monty_Hall_problem
| rgoulter wrote:
| The most recent viral maths problem I recall is Cheryl's
| birthday out of Singapore.
| https://www.youtube.com/watch?v=emiMj8cCL5E
| bentcorner wrote:
| Rewriting the question as if the room was supposed to be free
| also makes the bad math clear:
|
| > Three tourists stop at a hotel, and the manager tells them
| that a shared room will cost $30. Finding the price agreeable,
| they pony up $10 each and retire to the room. Later that
| afternoon, the manager, who is honest, realizes that the room
| was meant to be priced at $0. The manager orders the bellhop to
| return the excess $30 to their guests. The bellhop, who is not
| honest, takes $30 from the register and return only $1 to each
| tourist, pocketing the remaining $27.
|
| > Now, each of the three tourists has spent $9, for a total of
| $27. The bellhop has retained $27, which brings the total to
| $54. Where did the other dollar go?
| neogodless wrote:
| When you word it that way, I get a bit angry when I read
| "which brings the total to."
| mister_tee wrote:
| Yes, that phrase is definitely doing some work here :). The
| followup might be "the total of what?" +1 to sibling post
| on proper bookkeeping but we can also sum inflow/outflow
| for each of the entities. There isn't a node where it makes
| sense to add +$27 and +$2.
|
| The customers collectively are at -10*3 + 1*3 = -$27. The
| hotel is at 10*3 - 5 = $25 The bellhop is at 5 - 1*3 = $2
|
| And those sum to zero for the system; no money was created
| or destroyed.
|
| Or, thinking in terms of physical bills, the bellhop's two
| dollars are a subset of the 27 the customers paid out and
| adding them is double-counting. The real math behind the
| problem is just 27 = 25 + 2.
| munificent wrote:
| The puzzle is a lot simpler once you merge the 3 tourists into
| a single unit since there is no reason to treat them
| separately. Then it's:
|
| 1. A three-headed tourist gives $30 to the hotel.
|
| 2. The bellhop takes $5 from the hotel.
|
| 3. The bellhop gives $3 to the tourist.
|
| Now it's clear that the tourists are down $27, the hotel is up
| $25, and the bellhop is up $2.
| paxys wrote:
| Didn't see Bezos's original comments, but yeah they seem weird.
| He simply added up a bunch of random numbers from Amazon's
| balance sheet and said "see we created exactly this much value".
| [deleted]
| theonlybutlet wrote:
| In reality, the only measurable value wrt Amazon is it's retained
| net profit. For its shareholders, it is the net capital gain on
| their investment and dividends.
|
| Edit: Were it not for the above, assuming an efficient market,
| the resources would be allocated elsewhere and therefore they
| cannot lay claim to others profits and value add, considered a
| cost in their results.
| 838812052807016 wrote:
| I wonder if you could apply similar reasoning to critique "carbon
| neutrality".
| iudqnolq wrote:
| I found this a very good point. You can almost make a point that
| Amazon should get credit for the entire value created by every
| business on AWS, even if it's almost certainly technically wrong.
| If you then add on the money they paid you, it becomes absurd.
| They paid you the value (to them) of the thing they bought.
|
| > The point is, when you purchase a service from Amazon, the
| future value created by your usage of the service belongs to you,
| not to Amazon. Even if it seems like Amazon should get some
| credit, there's no reasonable way to measure such things, no
| scheme for attributing "value creation" fairly between the
| producers of every good and service you may have consumed on your
| way to running a business. Anyway, Amazon has already been
| credited for providing those services since they made money off
| the deal. Every business relying on Amazon contributes to that
| $21 billion in profit Amazon made.
| Trias11 wrote:
| It's easy, depending how to ask question:
|
| Checks and Balances CSV:
|
| ==============================================
|
| Tourists,Cash Register,Bell guy
|
| 30,0,0
|
| 0,30,0
|
| 3,25,2
| goldenkey wrote:
| To elucidate the bellhop problem, the $2 the bellhop has, should
| be subtracted from the $27 that the patrons paid. This leaves you
| with $25, which is the correct amount the hotel has after
| refunding $5.
| ikeboy wrote:
| >The most egregious misrepresentation of value creation in the
| letter is the $91 billion figure that Amazon has paid out in
| compensation to employees. This is patently ridiculous. Every
| single dollar of compensation paid out is done transactionally:
| it is used to purchase labor. In a typical transaction, no value
| is created.
|
| This is just wrong. The employer gets value because they make
| more (in expectation) from the worker than they pay; the worker
| gets value because they get paid more than the the minimum they'd
| be willing to work for. There's surplus on both sides in most
| transactions.
|
| The article makes some correct points. But it's frustrating to
| see it combining those with nonsense.
| zajio1am wrote:
| Exactly. This is just a level of ignorance that for me makes
| whole article not worth reading.
| intergalplan wrote:
| Which part's ignorant? If I pay $10,000 for land and $50,000
| in materials and pay $90,000 in labor to produce a building
| that I sell for $200,000, did I create $50,000 in value?
| $140,000 because for some reason my labor costs count as
| value creation? $200,000 because all costs count as value
| creation?
|
| [EDIT] Ah, I think I see, you don't like their assigning zero
| value to changes in distribution of goods. That makes sense.
| zajio1am wrote:
| > Which part's ignorant?
|
| Statements like: "In a typical transaction, no value is
| created."
|
| > If I pay $10,000 for land and $50,000 in materials and
| pay $90,000 in labor to produce a building that I sell for
| $200,000, did I create $50,000 in value? $140,000 because
| for some reason my labor costs count as value creation?
|
| In terms of production (value creation), we consider
| separately short-term inputs (e.g. materials) compared to
| long-term resources (capital, labor). In this example i
| would say that organization as a whole created $140000 in
| value using its capital and labour and used $90000 to
| compensate its labor (some other part to compensate
| capital, pay taxes and so on). This is essentially how GDP
| is computed, and also how VAT (value-added tax) is taxed.
| mckeed wrote:
| The value the employer gets is double-counted later as part of
| the profit.
|
| The value to employees is tricky. Without Amazon they might
| make more from a competitor with less market power. Without the
| industry, they might make more selling or transporting things
| directly.
| anigbrowl wrote:
| _The employer gets value because they make more (in
| expectation) from the worker than they pay; the worker gets
| value because they get paid more than the the minimum they 'd
| be willing to work for._
|
| The worker does not get value in that arrangement. The employer
| is (often but not always) a price maker, the worker is (often
| but not always) a price taker. This can change depending on
| whether there are inelasticities of supply or demand.
| ikeboy wrote:
| Price takers still get value, since the price they're taking
| is above their reservation price. The employer may capture
| more of the total surplus if they have market power.
| anigbrowl wrote:
| I don't regard that as value; your reservation price is
| what you can't afford to go below, not what you want.
| ikeboy wrote:
| Of course you don't want the reservation price; a
| transaction at that price provides no value to you by
| definition.
|
| You prefer a transaction at a higher price to one at the
| reservation price. Satisfying that preference is
| valuable.
| JKCalhoun wrote:
| > the worker gets value because they get paid more than the the
| minimum they'd be willing to work for
|
| I can't find technical fault with your comment, but I think we
| should be clear, very desperate people will work for nearly
| nothing.
| simonh wrote:
| Even the fruit analogy is laughably wrong. If I have a basket
| of oranges and you have a string of sausages, and we swap some
| of each, there are no more sausages or oranges but the diet and
| nutrition of both of us has significantly improved. That's why
| merchants create value, buying from people with a surplus and
| selling to people with a need. You can kind of understand why
| medieval nobles didn't understand this, but in this day and age
| it's not exactly rocket science.
|
| He gives his socialist credentials away later with the art
| example, only a worker making something can possibly add any
| value. It's the classic theory that managers and investors are
| all parasites and only workers create value. Again, value can
| absolutely be created by identifying an imbalance in supply
| (labour) and demand (products and services) and then working
| out how to resolve it. Somebody has to do it.
|
| I'm not saying Bezos' sums are credible or accurate or even
| mean anything, but this critique is crazily off base.
| albatruss wrote:
| I don't know if the author is a socialist but Marx himself
| would certainly agree with your first paragraph. In his own
| words: https://www.marxists.org/archive/marx/works/1867-c1/ch
| 05.htm...
| simonh wrote:
| I'm not sure how you can think that if you read Marx. He's
| explicit that merchants are parasitic because he makes an
| artificial distinction between use value and exchange
| value. From your link:
|
| " If equivalents are exchanged, no surplus-value results,
| and if non-equivalents are exchanged, still no surplus-
| value. Circulation, or the exchange of commodities, begets
| no value."
|
| He makes the distinction so that he can special privilege
| the value of labour as productive "use value", but the
| value of all goods derive from their use. The job of a
| merchant is to buy something from someone who has no or
| little use for it, and sell it to someone who has greater
| use for it.
| ezrast wrote:
| I'm sorry for being frustrating! This criticism is valid, and
| I've edited the article to clarify that I meant _market_ value.
| I hope that makes it less nonsensical.
| kixiQu wrote:
| There is a directly following paragraph about how this exchange
| is not exactly zero-sum, but so far from being representable by
| the dollar value changing hands that it doesn't matter for the
| purposes of identifying the value as $91 billion.
| intergalplan wrote:
| How's it nonsense? If I buy $499 dollars at face-value and sell
| them for $500 there's no possible justification for the claim
| that I created $500 of value. Perhaps I created $1.
|
| Paying for labor is _absolutely_ as transactional as paying for
| other inputs to your business. Because you (hopefully) create
| marginal value on top of that comp doesn 't mean the total comp
| is _your_ value creation.
|
| You can't just add total employee comp to your "value created"
| pile. There's maybe some marginal value creation you could
| kind-of claim in that your presence increased employee comp
| over some hypothetical world where you didn't exist--but that's
| getting well into bullshit territory, since there's no way to
| know some competitor you crushed wouldn't have ended up
| creating more total value and paying their employees even more.
| It's pure fantasy.
| ikeboy wrote:
| To be clear, I object to this sentence as nonsensical:
|
| >In a typical transaction, no value is created.
|
| As I explained, in typical transactions value is created for
| both parties.
| antisthenes wrote:
| > As I explained, in typical transactions value is created
| for both parties.
|
| The value created in a transaction is orthogonal to the
| total sum of money exchanged in the transaction. That was
| the meaning of the criticism.
|
| You are correct though in that the author worded it very
| unfortunately, which undermined the critique.
| kfarr wrote:
| I was also surprised by this assumption and the lack of
| discussion or validation: "in a typical transaction, no value
| is created"
|
| From my econ 101 high school days I remember a super simple
| example of 2 islands, 1 with only oranges and 1 with only
| pineapples. Simply by trading 1 orange for 1 pineapple (and
| vice versa) value is created since both parties get to
| experience different resources which offer them economic
| utility.
| fighterpilot wrote:
| Trade almost always creates value for both consenting
| stakeholders. It should be the default assumption and anyone
| arguing the opposite is talking nonsense.
|
| In rare edge cases it can be argued that trade doesn't create
| value for consenting stakeholders:
|
| (1) Information asymmetries that don't rise to the level of
| fraud, which cause one counterparty to make an uninformed
| decision.
|
| (2) Trades that appeal to the dopamine system but otherwise
| work against the individual, e.g. with social-media
| doomscrolling, gambling, drugs, fast food. In this case the
| individual has diminished agency to make the best decision
| for themselves in all cases.
|
| Anything else? [I'm ignoring externalities here]
| InitialLastName wrote:
| I don't think TFA would dispute that transactions create
| value. The argument being disputed is that the value
| created by a transaction is meaningfully measured by the
| value transacted.
|
| To use the pineapples and oranges island metaphor, imagine
| that on island A (which has lots of oranges but no
| pineapples) pineapples are valued at $1.1 and oranges are
| valued at $1, and v.v for island b, where oranges are $1.1
| and pineapples are $1.
|
| If you and I trade an orange on island A for a pineapple on
| island B, we both went from having $1 in fruit to having
| $1.1 in fruit on our islands. The value created by that
| transaction isn't $1, $1.1 (or $2.1 as Amazon appears to be
| double-counting some of the value between revenue, profit
| and wages), it's $0.2, which is the value we added to the
| fruit by moving it between islands.
| fighterpilot wrote:
| The general way to measure value creation would be to sum
| the difference between what both parties would be willing
| to transact for something with what they actually
| transact for it.
|
| In your example, the value creation is $0.2 ($0.1+$0.1)
| due to the existence of a perfect substitute.
|
| In other cases the value creation may be 10x the turnover
| or higher. For example, if there's a single surgeon that
| can give me a life saving procedure that costs me $50k
| when I would've happily paid $500k, then the value
| creation for me is $450k and perhaps $20k for the
| surgeon.
|
| In the case of Amazon, their numbers are probably an
| exaggeration, yes. They've assumed that the turnover =
| value creation, which is false reasoning, as we both
| recognize. It might be higher or lower. The real number
| might be 0.4x of what they stated, if I was to hazard a
| guess.
|
| But since the whole idea of value creation flies over the
| heads of so many people (and this misunderstanding of
| basic economics has profound policy implications),
| Amazon's exaggeration here is not a point I wish to focus
| on.
| InitialLastName wrote:
| ... Isn't TFA entirely about Amazon exaggerating their
| value creation and abusing the fact that said concept
| flies over many peoples' heads?
| fighterpilot wrote:
| What's TFA?
|
| The blog post says that "no value" was created which is
| the false claim we were discussing/debunking above.
|
| Amazon also made a false claim. Yes. So it doesn't seem
| like we're disagreeing about anything.
| animex wrote:
| This reminds me of Tesla's pricing page which shows your future
| gas savings deducted from the total cost of the car...
| chmod600 wrote:
| "In a typical transaction, no value is created. If I give you an
| apple and you give me an orange, the total amount of fruit in the
| economy remains constant. We can't create fruit by bartering with
| it. We can only do so by foraging or cultivating an orchard."
|
| That seems wrong. If I trade, that means I value whatever I get
| more than what I gave up; and likewise for the counterparty.
| Isn't that a net positive even though nothing was physically
| created?
| Kalium wrote:
| It makes sense if you believe value to be an objective thing,
| where each good has a fixed value that is a fact.
|
| In a slightly more complicated model - or the real world - the
| value of a good or service is informed by things like control
| and location. Value is not objective, but subjective. Value can
| be and often is created by moving good from a location where
| they are values little to a location where they are valued
| highly.
| chmod600 wrote:
| "It makes sense if you believe value to be an objective
| thing"
|
| Does any serious economic philosophy actually believe that
| foolishness?
| Kalium wrote:
| In feudal times, merchants were often derided for
| supposedly charging a price different from the "true price"
| of products.
|
| So perhaps not in any serious modern economic philosophy,
| but people definitely arrive at this idea in naive ways.
| grecy wrote:
| The best explanation I've heard:
|
| If I pay you $10,000 to eat a pile of horse manure, then you
| pay me $10,000 to eat a pile of horse manure we have:
|
| Created $20,000 of "value" for the economy and increased GDP
| $20,000. That's all great for PR!
|
| In reality we both just have s--t eating grins.
| skybrian wrote:
| So okay, fraudulent transactions exist. That doesn't tell you
| whether a particular transaction is fraudulent.
|
| The shipping industry is useful and using it to ship bricks
| for some fraudulent scheme doesn't change that. The value of
| a physical action isn't inherent in the action itself, but
| rather depends on what purpose it serves.
| khazhoux wrote:
| This actually creates 1BTC.
| robocat wrote:
| And unless you both pay your tax on your $10,000 income, you
| are defrauding the IRS (assuming you are in the US).
| chmod600 wrote:
| While funny, that doesn't really apply here. We're exchanging
| an apple for an orange. That is a very reasonable barter
| transaction and I see no reason that it doesn't create value.
|
| In fact, the value is likely to be _under_ counted by GDP.
| People are taxed on income, so casual transactions like the
| orange-for-apple trade are likely to be left out of GDP
| simply because they are unreported.
|
| Your example is the opposite: over-counting GDP and the
| participants paying thousands of dollars in taxes.
| [deleted]
| aidenn0 wrote:
| Shortly after that he does acknowledge that collective labor
| may be more valuable than individual labor.
|
| However we can all agree that Amazon doesn't create $91B of
| value when it buys something for $91B in cash. The entire
| supply chain behind creating the thing Amazon buys, plus the
| raw inputs, creates something of value that Amazon then
| consumes.
|
| You could maybe argue that in a market without Amazon, the
| workers may have been paid only, say, $85B, so Amazon has
| transferred $6B from consumers to workers. Even then, the value
| of transferring $6B from consumers to workers is unlikely to be
| $6B.
|
| If I tighten the last bolt on a car that is worth $20k, I have
| not created anywhere near $20k in value.
| chmod600 wrote:
| I agree that the overall value that amazon is claiming is
| dubious at best. It's conflating consumer/producer surplus
| with net profits and conflating both of those with wages.
|
| But the whole point of the article is to debunk these
| distortions and add clarity. Adding its own confusion and
| distortions is not a good way to start.
| dools wrote:
| I think the point is that value is created here when the fruit
| is grown not because we swap the fruit
| Pfhreak wrote:
| There are colloquial usages of 'value' that make this
| conversation more complicated. We might describe the value as
| the utility or desirability of the object -- use value -- where
| I value food because I can eat it.
|
| Or the exchange value, ie, how many apples is this iron worth.
|
| Or the labor value, ie, how much labor went into producing this
| item.
|
| Or the price, ie, how much is this item worth in money.
|
| It seems that in reading this sentence, the author is talking
| about the labor value of the fruits. The various parties may
| have different ideas about exchange values, prices, and use
| values, but the labor value doesn't change because the items
| have exchanged owners.
| chmod600 wrote:
| Doesn't it take labor to facilitate the matchmaking,
| transportation, and transaction costs associated with barter?
| simonh wrote:
| The problem with accepting this premise is that it violates the
| core principle of socialism that only labour creates value. But
| yes, of course, if I have an orange grove and you have
| chickens, if we trade then the diets and nutrition of both of
| us improve.
|
| Identifying imbalances in supply and demand and resolving them
| absolutely crates value, but that's the root of big scary nasty
| evil capitalism, so we can't be having it.
|
| Not that Bezos' sums make and real sense at all either, but
| this critique is way off base.
| A_non_e-moose wrote:
| Reminds me of the more adult 100$ debt riddle. Found it at
| econlib.org by David Henderson, but I've heard multiple
| variations before, so I have no idea where the original comes
| from.
|
| "It's a slow day in some little town........ The sun is
| hot....the streets are deserted. Times are tough, everybody is in
| debt, and everybody lives on credit. On this particular day a
| rich tourist from back west is driving thru town. He stops at the
| motel and lays a $100 bill on the desk saying he wants to inspect
| the rooms upstairs in order to pick one to spend the night. As
| soon as the man walks upstairs, the owner grabs the bill and runs
| next door to pay his debt to the butcher. The butcher takes the
| $100 and runs down the street to retire his debt to the pig
| farmer. The pig farmer takes the $100 and heads off to pay his
| bill at the feed store. The guy at the Farmer's Co-op takes the
| $100 and runs to pay his debt to the local prostitute, who has
| also been facing hard times and has had to offer her services on
| credit. She, in a flash rushes to the motel and pays off her room
| bill with the motel owner. The motel proprietor now places the
| $100 back on the counter so the rich traveler will not suspect
| anything. At that moment the traveler comes down the stairs,
| picks up the $100 bill, states that the rooms are not
| satisfactory, pockets the money & leaves. NOW,... no one produced
| anything...and no one earned anything...however the whole town is
| out of debt and is looking to the future with much optimism."
| [deleted]
| Sniffnoy wrote:
| Link to the actual post:
| https://www.econlib.org/archives/2012/01/an_answer_to_a.html
| bartkappenburg wrote:
| Hence the existence of a clearing house in the stockmarket:
| cross off debt and credit in the whole market. Every one in
| your story has 100 credit and 100 debt which makes them worth
| 0. Aligning that in the right way makes a lot of sense :-)
| cgb223 wrote:
| This is a brilliant explanation of what a clearinghouse does
|
| First time I've understood it intuitively
| zanybear wrote:
| Interestingly, the scenario does not include transaction
| costs. In the general sense that is money that stays in the
| cycle (economy) ?
| babaganoosh89 wrote:
| Makes sense, all the people in town had $100 in debt and $100
| in outstanding invoices.
| Rebelgecko wrote:
| I saw an old PSA, maybe from the 50s or 60s, that had a similar
| situation (sans prostitute). The twist is, it's a paprr check
| instead of cash and the guy who wrote the check is broke.
| There's this whole chain of endorsements as the check is passed
| around town before it gets back to the guy who wrote it, saving
| him from the shame of a bounced check.
| OscarCunningham wrote:
| This is why the central banks have been printing money.
| jonny_eh wrote:
| This is absolutely the correct answer. This joke/riddle gets
| to the heart of what "money is". It's a form of
| communication, it's merely a catalyst that enables trade.
|
| Another way to look at it: The debt (or the $100 bill)
| allowed all these different professionals to offer services
| to each other, without a direct back-and-forth barter. If
| they had started with the prostitute renting the room with a
| $100 bill, there would have been no debt.
|
| The reason why the physical $100 is so important (and why the
| Fed prints money), is that it allows for trade to occur
| without this accrual of debt. The existence of the debt
| creates the perception of risk, which prevents further trade
| from occurring.
| dools wrote:
| It's just double entry bookkeeping
| dools wrote:
| There is no print money operation.
|
| There is federal spending which creates net financial assets
| by first issuing new bonds in exchange for existing reserves
| and then spending those reserves back into the system.
|
| There is swapping reserves for bonds either as they mature or
| as repurchases.
|
| There is federal taxation which destroys net financial assets
| by draining reserves.
|
| That's it, there is nothing called "print money".
| phaemon wrote:
| Well the _main_ reason they print money is so that there will
| _be_ money. That 's where money comes from. It's printed.
| Hence the pictures on it.
| celticninja wrote:
| The rich tourist isn't even required if everyone communicated
| about their respective debts.
| burnte wrote:
| Which no one will do because you want to put on a good front.
| ric2b wrote:
| Then why was the motel owner confident that the $100 bill
| would come back to him so he wouldn't be caught stealing
| from the tourist?
|
| Clearly he knew this was happening.
| [deleted]
| MR4D wrote:
| To recast this in accounting terms, everyone had $100 in
| accounts _receivable_ and also had $100 in accounts _payable_.
|
| To anybody who has ever had accounting (and nightmares of
| t-accounts), this balances to zero.
| jameshart wrote:
| But everybody also knew everyone else was broke, so they had
| mentally discounted the future value of their accounts
| receivable (though obviously not to the point of actually
| writing it off yet). So their subjective sense of their
| future worth was negative, until the stranger showed up and
| injected liquidity into the market.
| tshaddox wrote:
| This doesn't seem that puzzling to me. It only happens to work
| because all the debt in the whole town just so happened to form
| a perfect cycle, or equivalently (I think), everyone in town
| was owed the exact same amount that they owed. That seems
| exceedingly unlikely to occur and thus doesn't lead me directly
| to any conclusions about the absurdity of the real economy.
| teawrecks wrote:
| They don't have to line up perfectly for there to be a cycle
| and thus some minimum amount of debt everyone has that's not
| real. Someone in the loop might think they owe $1000 and
| actually owe $900, while someone else thinks they owe $100
| but actually owes nothing.
| tshaddox wrote:
| I'm not sure what you mean. Assuming that everyone knows
| all of their own debts and credits, then they already know
| their net balance. In the riddle, everyone already knows
| their net balance is 0, so I would question why everyone is
| so pessimistic about the future unless the terms of their
| debts are less favorable than the terms of the credit
| they've given out.
| neilwilson wrote:
| That's the classic stock/flow issue.
|
| What people forget is that values like turnover and wages are
| denominated in $/month not $.
|
| Mixing up the two is like mixing up miles per hour and miles.
| rytill wrote:
| Not at all. I can't convert between miles per hour and miles
| given an interest rate.
| willismichael wrote:
| You can convert between the two with an acceleration rate.
| ric2b wrote:
| That one is much simpler though, it's just a closed loop of
| people owing each other.
|
| The interesting part is that it seems the motel owner was aware
| that the loop existed and would end up back with him, otherwise
| he would've been caught stealing from the tourist.
|
| If he already knew this he would be able to get people together
| and agree to cancel all the debts, with no need for the
| external $100 to show up.
| kemotep wrote:
| Getting everyone in a small community to agree to cancel all
| debts would be like a biblical Jubilee[0].
|
| So it is not too far-fetched of an idea to have happen.
|
| [0]:
| https://en.wikipedia.org/wiki/Jubilee_(biblical)?wprov=sfti1
| jdmoreira wrote:
| I think this is a very smart piece. It exposes very clearly that
| money is not value.
|
| You can bundle existing value from one side, add maybe an extra
| bit here and there and collect money for the process. But how
| much money you collected in the end has very little relation to
| how much value you added to the system. Especially since some of
| the shareholders did absolutely no value creation.
|
| Jeff Benzos is a very smart person and an excellent CEO. He used
| to work for the Renaissance Fund as well. I really wish I could
| hear his honest opinion on this piece. He will most likely never
| read it but I hope he would and I hope he took the time to reply
| with honesty and no ego.
| igorzx31 wrote:
| Jeff Bezos worked at D.E. Shaw not Renaissance Technologies.
| Different funds.
| jdmoreira wrote:
| Thanks! I must have mixed it up in my mind. Wetware Memory
| sucks.
| MR4D wrote:
| > that money is not value.
|
| Very much so!
|
| Money is a tool used for accounting, while value is a system
| for perception. They interact, but as you say, are not the
| same.
| Grimm1 wrote:
| I think it quibbled over standard language that every business
| uses in it's releases and used Bezos as a whipping post to make
| a point because it wouldn't have gotten traction otherwise.
| jdmoreira wrote:
| So what? That's why is meaningful. It exposes falsehood that
| we are too distracted to see and understand. I for one
| appreciate having my mind blown once in a while and my dogmas
| questioned.
| gitanovic wrote:
| This
|
| I also read the letter from Bezos and thought "ok is just
| useless propaganda"
|
| But having someone break it down for me and questioning
| every statement, was somewhat useful, and possibly
| increased my awareness to this kind of krap... ehm double
| standards
| throwaway789394 wrote:
| Sounds like labor theory of value. Not really that great of a
| theory.
| dools wrote:
| I wish someone would change the dictionary definition of money
| to "record of value" rather than "store of value". It would
| clear up a lot of economic misconception.
| Kranar wrote:
| I thought it was poorly written and fails to understand some
| simple financial terms. When people say value is created for
| shareholders, they don't mean shareholders created that value;
| they mean that the value of the thing owned by shareholders has
| increased.
|
| I own shares of a company (I am therefore a shareholder), if
| the value of that company increases then the value I own as a
| shareholder increases, hence value was created for me as the
| shareholder. This is such a basic principle that the author
| failing to understand this is kind of embarrassing.
|
| There are other basic things the article gets wrong, like
| saying that bartering doesn't create value which is patently
| false. Bartering does in and of itself create value by
| allocating resources to those who wish to consume it. When
| Alice trades an apple with Bob for a potato, it's usually done
| because Alice has a need for a potato and doesn't have a need
| for the apple, and vice versa for Bob, hence the allocation of
| apples and potatoes goes to where it's most desired. This
| increases the efficiency of resource allocation which in and of
| itself creates value. Furthermore the bartering in and of
| itself causes an incentive to produce more apples and potatoes.
|
| Honestly this is really basic stuff and not worth writing an
| entire article bickering over semantics.
| burkaman wrote:
| > When people say value is created for shareholders
|
| From the Bezos letter:
|
| "Summarizing:
|
| Shareholders $21B
|
| Employees $91B
|
| 3P Sellers $25B
|
| Customers $164B
|
| Total $301B"
|
| This article is criticizing "employee value" and "customer
| value", not shareholder value.
| jakubp wrote:
| You are wrong about apples and potatoes - the blog post
| author does mention your story just under different term:
| utility, which is a standard way to express the notion you
| touched: the total utility of an apple and a potato in the
| right hands is higher than utility of them in the wrong
| hands. So barter increases utility, but economy as a whole
| isn't any more valuable because of it (externally it'll trade
| the same). It's also echoed in OP's point about utility of
| money (and a question whether Amazon actually increases or
| decreases total utility in the economy).
|
| Bezos claims he created 310 B of value and you say "as
| shareholder I care about value of the company", but you and
| other shareholders who own (together) 100% of Amazon didn't
| get 310 B of value, did you?
|
| That's the thing. Neither did the economy "gain" all this
| value. If I work for 10 hours and earn a 1000 uSD, my
| employer didn't create 1000 USD worth of value. We traded my
| time/effort/exhaustion for money. Maybe there was some actual
| value created through that work for us or economy/society, or
| maybe it was meaningless work (and we even stole value from
| the society by e.g. burning me out).
| LeifCarrotson wrote:
| This is a philosophical piece, the fact that it's really
| basic stuff is exactly why an entire blog post (better yet, a
| journal article or book) should be written to bicker over
| those semantics. Those financial terms are loaded with
| meaning and the author believes that meaning to be invalid;
| the semantics are the entire point.
|
| What does it mean to 'create value'? As a passive shareholder
| who does nothing but own shares that increase in value, have
| you actually created anything? How can you have created value
| without creating anything? If Alice values potatoes at 1.01
| apples and Bob values apples at 1.01 potatoes, and they
| trade, _maybe_ they 've created 0.01 apples worth of value
| but they certainly have not created two, they started with
| two and ended with approximately two. If they change their
| mind and trade back, they've not created 0.02 apples worth of
| value, they've revealed that the whole thing was a waste of
| time. If the value of your time is $14.95 an hour, and you
| get an Amazon job making $15 an hour, Amazon's addition to
| the economy is $0.05 per hour not $15.
|
| No, it's the farmer who starts with dirt, water, sunshine and
| diesel and grows the apples and potatoes who is creating
| value. "Efficiency of resource allocation" are a lot of big
| words that do little more than justify the speaker diverting
| a little of the revenue stream to themselves.
|
| Money is only very loosely connected to value creation,
| because there are two separate factors that tie them
| together: The amount of value your work adds to society, and
| your ability to extract money from society.
|
| The whole point is that no human, not even Jeff Bezos, can
| generate 200 billion dollars worth of value by working. Not
| by carrying a lot of boxes really fast, nor by thinking
| really hard, nor by working long hours; not even if he pushes
| even more boxes while thinking really bright ideas while
| saving time by peeing in a bottle instead of going to the
| bathroom, he's simply not that many orders of magnitude
| smarter or stronger or more dedicated than other humans. And
| yet his net worth is close enough to $200B that it makes
| sense to round up about $1.7 billion dollars worth of value,
| while other people are carrying boxes for $15 an hour and are
| orders of magnitude away from rounding up to a net worth of
| $0.1 billion dollars.
|
| The disparity between value generated and money extracted is
| the core injustice that the open letter glosses over with
| casual semantics and that the article seeks to understand and
| expose by being unconventionally precise.
| simonh wrote:
| >they've not created 0.02 apples worth of value, they've
| revealed that the whole thing was a waste of time
|
| If you select an example with almost identically
| substitutable goods, no wonder you miss the point. Lets use
| oranges and sausages in the example instead. Now we're
| trading meat for fruit. What's the value to you of not
| dying of scurvy or protein deficiency?
|
| Identifying imbalances in supply and demand, and working
| out how to resolve them creates huge value, otherwise all
| trade would be pointless.
|
| That's where investors and business owners come in. They
| identify an imbalance in supply and demand between the
| labour of employees and the needs of customers. Sure the
| employees could do that themselves, and that's fine. It's
| not as if it's illegal, good luck to them. Power to the
| people. But the point is somebody has to do it and it
| absolutely creates value.
| jay_kyburz wrote:
| >Identifying imbalances in supply and demand, and working
| out how to resolve them creates huge value, otherwise all
| trade would be pointless.
|
| Yes sure, but to have claimed to "create" the value, it
| can't simply be taken from someone else. If other people
| were already selling apples and sausages and you move in
| a put them out of business then you haven't created
| anything, you have just captured and monetized value for
| your own shareholders.
|
| Whats more, If the folks that used to sell apples, also
| sold bananas, but you drove them out of business, and now
| bananas are no longer available, value may have been
| lost.
| SuoDuanDao wrote:
| Sometimes I get concerned by how unabashedly people put
| forward frankly socialist talking points in public
| discourse these days. But then I see how incredibly
| common sense refutations by people like yourself are, and
| feel a little less worried.
| simonh wrote:
| Well, I don't think socialists are completely wrong about
| everything. It's just that particularly in economics the
| basic theory they're working from is deeply flawed. On
| the other hand while market forces are incredibly
| powerful, they're not an end in themselves. Both
| capitalism and socialism taken to ideological extremes
| can be incredibly dangerous and harmful, but the ideas in
| both have plenty to offer.
| Aunche wrote:
| The money made by holding Amazon is value created, not
| value extracted. In 2000, Bezos, early employees, and
| investors could have decided to cash out by issuing
| dividends or buying back their own shares with Amazon's
| profits. Instead, they chose to reinvest that profit into
| Amazon in the form of new fulfillment centers and new
| workers. This gave Bezos even more potential profit, but
| again he chose to reinvest it in the company. This
| compounded for two decades, so now Amazon is a trillion
| dollar company. Without someone holding the stock, Amazon
| would not have grown to the extent that it had. Even if
| Bezos sold his shares to someone else, that other person
| needs to decide to reinvest Amazon's potential profits back
| in the business.
| makomk wrote:
| Do you know how much those potatoes are worth to the farmer
| who starts with dirt, water, sunshine and diesel and grows
| them if the supply chains and infrastructure aren't there
| to get them to consumers? _Zero._ We saw this with the
| pandemic when the normal supply chains were disrupted and
| farmers literally ended up plowing their potatoes back into
| the fields because there was suddenly no way to sell them
| all. In fact, technically it 's negative - the fuel and
| time to dispose of them costs something. (Of course, all
| the left-wing activists blamed some capitalist conspiracy
| for this, as though the potatoes would magically fly from
| field to plate if we did away with capitalism.) The core of
| the modern economy is specialization - instead of everyone
| growing their own food, a much smaller number of people
| grow food for everyone, freeing up a bunch of time for
| other things beyond just basic sustenance - and the actual
| multipliers involved are pretty huge.
| Gabriel_Martin wrote:
| FWIW, I don't think one needs to believe in capitalist
| conspiracies to feel repulsed by a situation in which
| stranded food is being buried in bulk to minimize losses,
| because there's not market mechanism to get it to people
| during a pandemic, while there are miles of lines at food
| banks, and record levels of food insecurity. Not
| everything needs to be couched in an ideological battle
| between capitalism and socialism, IMO.
| ipaddr wrote:
| "The whole point is that no human, not even Jeff Bezos, can
| generate 200 billion dollars worth of value by working"
|
| This is untrue and unlikely.
|
| Invent a star trek type transporter. I bet you could sell
| your work for 200 billion in cash or 1 trillion in fedex
| stocks.
|
| You are never going to create 200 trillion value working
| for Jeff so he pays you 200 billion. Amazon is setup so the
| value create goes to Jeff and other shareholders. If you
| are lucky you get 100th of the value you are part of
| creating. (Yearly profits + yearly valuation increases) /
| total employees / 1000 is your pay if you are lucky
| skybrian wrote:
| It's a bit easier to see the value of trade when there is
| some schlepping involved. Buying fish off the boat and
| selling it in the grocery store provides a useful service
| for the people shopping at the grocery store, since they
| don't have to go to the docks. Reversing that would be
| nonsensical and destroy value; nobody needs more fish at
| the dock.
|
| Just because it's the same commodity doesn't mean it's
| worth the same amount at every time and place.
| Transportation and storage are technologies that add value
| by taking surpluses and moving them where they are needed
| more. This is still true when the cost of transport is very
| cheap.
|
| Amazon is clearly doing something very useful with its
| warehouses and delivery. This is all about getting stuff to
| people whenever they want it.
|
| How much this is really worth is unclear. You can't take
| prices at face value. A monopoly could charge higher prices
| than other companies would charge for the same service in a
| competitive industry, and the difference is how much of the
| value goes to the company versus the buyer. But doing
| calculations using prices is often the best we can do.
| LeifCarrotson wrote:
| Shipping goods from one place where they're available to
| another where they're needed is definitely a way to add
| work and create value, I don't dispute that at all!
|
| It's pretty obvious that fish slowly going bad on a boat
| is worth little, and that driving an expensive reefer
| truck to get it from there to a grocery store (and
| subsequently, for the fishmonger to process and package
| it) is a valuable, constructive process.
|
| However, for something closer to the real world, if you
| set up a regulatory system where you're the only one with
| the registration needed to sell fish, then you buy 1000
| kg of frozen Tilapia from fishermen at $2/kg, hire a
| freight company to drive it a few dozen miles from the
| docks to the packing plant for $300, spend $300 to have
| it inspected, and sell it to the packer at $4/kg, have
| you really added anything? You've made $1400 profit, but
| you've barely lifted a finger to make some phone calls.
| That's not 'value creation' or a unique skill in
| 'identifying supply and demand', you're abusing market
| inefficiency to rip people off and undeservingly make
| yourself richer. And then to pat yourself on the back at
| the end and say you created value equal to the
| fishermen's profit plus the $600 of services you bought +
| your own $1400 profit is just adding insult on injury.
|
| Doing calculations using prices is easy, but we can do
| better than to take them at face value. Amazon is clearly
| doing something useful, yes, but not $301B worth of
| useful. They're also positioning themselves to take more
| money out of the connection they've established between
| buyer and seller than the shipping, processing, and
| warehousing costs.
| skybrian wrote:
| Well, counterfactuals are tricky. In the fish example, if
| you compare to nobody selling fish at all, they are
| adding value by creating a market where there wasn't any
| before, even if it's in a monopolistic way. But if your
| alternative is a competitive fish market, maybe no value
| is added, but the monopoly is charging more for it.
|
| Charging more is capturing consumer surplus value. If it
| weren't still worth the money, they wouldn't pay for the
| fish. The higher price more accurately reflects that
| value of the product to the people who still buy it.
| (Assuming they know what they're doing.)
|
| Whether or not charging more is good or not depends on
| your point of view. Buyers and sellers have different
| opinions. I believe "charge more" is a slogan generally
| repeated approvingly around here when we're talking about
| developer salaries?
|
| Here's an example of capturing consumer value that's
| considered relatively benign, good even: you can listen
| to a lot of music for free these days, but then Patreon
| came along and convinced a lot of people that artists
| should be paid more. The market price in a perfectly
| competitive market is that music should be free, but
| sometimes the fans themselves disagree with that.
|
| It doesn't seem like there is any objective truth to the
| matter as to how much music is worth. There are only
| opinions. Sometimes you can do some math, but the input
| is opinions, so the output is aggregate opinions.
|
| The same seems true of other prices. Costs usually set a
| floor. Consumer value is higher than that, but people
| disagree on what's "worth it."
| Aunche wrote:
| >if you set up a regulatory system where you're the only
| one with the registration needed to sell fish
|
| This doesn't happen though. There's nothing stopping you
| from setting up your own fish whole selling company if
| you think that is lucrative. Sure there will be
| regulatory hurdles, but if you can make a case that you
| can do it for cheaper while still making a profit, you
| can find an investor to pay for your lawyers.
|
| The fisherman wants to sell all their fish with a price
| that they know in advanced. However, the packer only
| wants to the fish that they know that they can sell to
| supermakets, and doesn't want to buy more than they have
| to. Without someone assuming the risk of holding a bunch
| of frozen fish for a long time, the fisherman wouldn't
| being fishing as much, which means less fish ends up with
| the customer, and less value being created.
| [deleted]
| jay_kyburz wrote:
| >Amazon is clearly doing something very useful with its
| warehouses and delivery. This is all about getting stuff
| to people whenever they want it.
|
| >How much this is really worth is unclear.
|
| We can let the market tell us how much its worth. We can
| look at how much people are willing to pay for it.
|
| How much extra is a customer willing to pay to have it
| shipped from amazon than go pick it up in a store?
|
| How much cheaper is a seller willing to sell a product to
| have it on amazons store?
| jdmoreira wrote:
| > Just because it's the same commodity doesn't mean it's
| worth the same amount at every time and place.
|
| That's what arbitrage is
| MR4D wrote:
| >If Alice values potatoes at 1.01 apples and Bob values
| apples at 1.01 potatoes, and they trade, maybe they've
| created 0.01 apples worth of value but they certainly have
| not created two, they started with two and ended with
| approximately two.
|
| I believe this to be incorrect. For instance, let's say
| that Alice runs a hamburger stand, and wants potatoes to
| sell alongside her burgers. Conversely, perhaps Bob makes
| apple pies which he then sells.
|
| In a situation like this, they both would value (the verb)
| the other food more than the one they had, which would
| cause them to enact the trade - they are increasing their
| wealth by doing so. (This leads to a whole additional
| conversation about wealth, but I'm trying to keep it short
| here.)
|
| The reason they would value it more is because they could
| create more value from the other's food. Bob can sell an
| apple pie for perhaps 10 bucks, of which most is profit. He
| cannot do anything with a potato, so the value of a potato
| is significantly less. Likewise, Alice might be able to
| sell one potato's worth of french fries for $5, generating
| a significant profit, and thereby creating value.
| underdeserver wrote:
| It is false, but so is Bezos' claim - if you would take $100K
| in salary, but wouldn't take $90K, that means your time is
| worth X where $90K <= x < $100K. Let's assume x = $95K.
|
| If your work is worth to me $120K, and you accept $100K, you
| have created $20K for me.
|
| Therefore our employment agreement created $25K in value each
| year.
| ImPostingOnHN wrote:
| If someone pays you $100K, then your value is, by
| definition, $100K, because the value is what someone is
| willing to pay. 100% of that value, by the way, is created
| by you developing from a $0K-salary baby into a
| $100K-salary adult. So that's 100K value created by the
| employee (and the people in their life to an immeasurable
| degree).
|
| If your work is worth $120K to your employer, the
| difference, like you said, is $20K of value created by the
| employee.
|
| All this to importantly note that the employment agreement
| didn't create $120K of value -- the _employee_ did, _for_
| the employer.
|
| If the employer takes 2 of you, each individually providing
| $120,000 of value to their customers, and, through managing
| you as a team, manages to extract $250,000 from a customer,
| then the employer has finally created value --
| specifically, $10,000 worth.
| Joker_vD wrote:
| It's a interesting approach to accounting, except for the
| fact that the manager is not paid $10k when employers are
| paid $120k each.
|
| And anyway, that's not the manager who produced that
| value: it's the sales team, without them the product is
| literally worthless. So what is manager paid for, again?
|
| And even more interesting question now would be "what are
| shareholders are paid for anyway, after they've been
| repaid the initial investment with the interest on top?"
| pnutjam wrote:
| sales team creating value... hilarious... LOL
| Joker_vD wrote:
| I tried to pull reducto ad absurdum as hard as I could;
| judging by the score on that comment, I've succeeded.
| Joker_vD wrote:
| I remember reading something like this in Marx's first
| volume of Capital, where he was explaining how the labour
| is "self-expanding", that is, producing more than it costs
| to sustain (except he used work-hours in accounting).
| Funnily enough, if you read Marx's account closely enough,
| there is no unfairness in payment: what's bought is
| "ability to work", its marginal price in the competitive
| market is exactly the cost of living, and the fact that the
| price of the resulting product the higher is irrelevant.
| MattRix wrote:
| Maybe you need to read the article again, because in this
| comment you are conflating different kinds of "value" as if
| they are all equally meaningful.
| lottin wrote:
| No, the author is right. He says that barter does not create
| market value which is true. Barter may or may not lead to a
| better allocation of goods, in terms of exchange efficiency,
| but the market value (i.e. price) of those goods and the
| amount of goods remains unchanged.
| cperciva wrote:
| _one might consider that, taking the marginal utility of money
| into account, a dollar in the hands of an Amazon employee is in
| fact more valuable than the same dollar in the hands of an Amazon
| shareholder._
|
| I'm not at all certain this is correct. Yes, Jeff Bezos owns a
| lot of Amazon; but so do pension funds and other institutional
| investors. Amazon has a lot of very wealthy employees, and I
| wouldn't be surprised in the slightest if the average employee is
| wealthier than the average beneficial owner of Amazon stock.
| extra88 wrote:
| I don't know about average but the _median_ Amazon employee,
| including all those working in warehouses, driving trucks, etc.
| is unlikely to be wealthier.
| ingleswood wrote:
| The right tail of Amazon shareholders' wealth is much longer
| than the right tail of Amazon employees' wealth, since it
| includes the richest (and 21st richest) person in the world.
| The best paid employee in the world probably doesn't work for
| Amazon, and they are also much less rich compared to the
| median employee than the richest person is compared to the
| median wealth holder.
| extra88 wrote:
| I don't know what your point is.
|
| I was making a distinction between "average employee" which
| can be distorted by having vastly wealthier individuals
| amongst their number, and "median employee,' which is not.
| I hope Amazon does have a large cadre of well-paid
| employees but they're vastly outnumbered by the warehouse
| workers, delivery staff, etc.
|
| I was responding to someone speculating that because a lot
| of Amazon stock is presumably held by pensions and other
| institutional investors, the value of _those_ stocks goes
| to very average people who are not wealthy (by U.S.
| standards). I think that even if a lot of Amazon stock is
| held that way, if you have a job for which you receive a
| pension or contribute to a retirement fund that 's worth a
| damn, you're not wealthy but you're probably wealthier than
| the bottom half of Amazon employees.
| ingleswood wrote:
| My point is that the 'average employee', as compared to
| the 'median employee', is probably distorted much less
| than 'average shareholder' compared to 'median
| shareholder'.
|
| Therefore I don't agree with you that while the average
| employee might be richer than the average shareholder,
| the median employee might be poorer than the median
| shareholder. If the average employee _is_ richer than the
| average shareholder (which I doubt), then the median
| employee is probably much, much more richer than the
| median shareholder.
| extra88 wrote:
| Thanks for the clarification.
|
| Part of my thinking assumes Bezos himself counts as an
| Amazon employee so all by himself he heavily affects the
| difference between average and median employee (he might
| be the only billionaire employee, Andy Jassy is
| presumably one of the wealthiest employees and he's below
| $500m).
|
| Since Bezos is also a shareholder (I assume the largest
| individual shareholder), he also distorts that average.
| However, since I assume there are orders of magnitude
| more shareholders (through their stake in pension and
| retirement funds) than working for Amazon, all those
| additional data points smooths the difference out more.
| maerF0x0 wrote:
| > Money and labor are both more abstract than fruit, so there is
| a little bit of leeway to interpret employment transactions as
| being non-zero-sum.
|
| This paragraph gets into something i've been pondering about
| GDP/societal wealth. Imagine we have a carpenter and a plumber
| both sitting idle and who needs eachothers' services. If they
| cannot agree upon an exchange or price then the system loses out
| on the potential productivity. The system as a whole is made
| poorer by actors being disagreeable.
|
| I have often wondered how rich life could be if we were more
| agreeable to give to the other the gifts of our marginally unused
| productivity (rather than giving it to netflix, facebook,
| instagram, and tik-tok...)?
|
| Would poverty be erased, or other desirable things be achievable?
|
| Now look at the ideas of a minimum wage or of being frugal. Both
| are a kind of refusal to participate in the economy leaving
| behind marginal potential value creation. If we refuse to spend
| our money it doesnt fund development of projects, if we refuse to
| work at a certain rate we lose out on the goods that could have
| been built.
|
| Anyways that's a musing I was reminded of by this piece.
| mdoms wrote:
| > I have often wondered how rich life could be if we were more
| agreeable to give to the other the gifts of our marginally
| unused productivity (rather than giving it to netflix,
| facebook, instagram, and tik-tok...)?
|
| You think life would be better if we all never stopped working
| and simply 'did our part' 16 hours a day without compensation?
| maerF0x0 wrote:
| that is approximately the most negative spin you could have
| made on my point.
|
| The point is that if the trade doesn't occur, both parties
| lose out on what good could be and sometimes we cannot
| actually see the good but could value the good of the other.
| I'm not saying everyone should go work for bezos for free
| because his utility will rise. But more like in normal
| community interpersonal relationships. Say a small business
| owner wants to use some services, but cannot afford an
| expensive experienced person like a large business could (Say
| a high priced contract engineer) during a quiet period the
| resource goes idle and the business loses out, when both
| could have had some value if one would be more agreeable and
| say "look, I'm not working right now and sure I'll work for
| X% off for that reason and because I like you"
|
| And where it fits with the commentary on minimum wage is that
| it technically would be illegal if that percent off dropped
| below minimum wage, then no trade could happen leading to
| vicious cycles rather than virtuous ones. The business that
| got its website built can make more sales and can pay more
| for high priced engineers. Whereas the business that cannot
| get a website built loses out on sales and cannot give any
| future work to the engineer. There's a sort of symbiosis in
| the health of the actors in the system and their ability to
| pay for generally good things.
| bskrobisz wrote:
| You've painted the above comment as a negative spin, but
| I'm not really understanding, in your post, where it isn't
| just a less extreme version of this same spin.
|
| You're suggesting a human should spend otherwise free time
| (which would otherwise be spent enjoying leisure, which we
| can presume has high positive value for that human) to
| generate value for others, in the hopes of receiving value
| in return?
|
| In a system where this isn't an iterated version of the
| game (e.g. you're only playing against other actors a small
| number of times each), I don't see how this could function
| without systems like social credit which are abusable at
| higher levels than the individual actors.
| maerF0x0 wrote:
| Yeah, i think part of what maybe you're assuming into the
| picture is that the engineer in the question is
| overworked and their labor has a net negative utility in
| their life without sufficient compensation to make up for
| that negative.
|
| I see it more like people like/love their craft and
| sometimes it makes sense to just do it because one likes,
| and somehow gets "something" out of helping the other
| person too.
|
| Think about a depression where people are refusing to
| work for eachother because no one can pay, nonetheless an
| engineer could build a website for a business just
| because they know if the business goes under it has
| perpetuated and exacerbated the depression... another
| more quaint example might be a cobbler who would fix
| people's shoes for whatever they can pay, because if he
| sticks to the normal price few could afford it and he'd
| be idle, but if he's generous enough to just do it
| anyways then at least the one in need is no longer.
|
| In typing back and forth I guess it basically boils down
| to charity. The idea that charity could potentially
| nullify and turn around a vicious cycle in an economy
| because folks selflessly added to virtuous cycles. It
| doesn't have to be as brutal as a depression, but could
| be simple as a local business person you care about who
| cannot compete with the unlimited funds or whatever from
| another company.
| gshulegaard wrote:
| This is an interesting article but it starts off on the wrong
| foot for me:
|
| > This is patently ridiculous. Every single dollar of
| compensation paid out is done transactionally: it is used to
| purchase labor. In a typical transaction, no value is created.
|
| This, as I understand it in a limited fashion, is not true. There
| is a concept of the velocity of money in which more value than
| the initial transaction is created:
|
| https://en.wikipedia.org/wiki/Velocity_of_money
|
| This is, in part I believe, why a nation's GDP can exceed it's
| nominal cash in circulation. In particular, the Great Depression
| was a period of low monetary velocity and yet staggering
| inflation; the term "stagflation" (stagnation + inflation) was
| coined to describe this phenomena.
|
| https://en.wikipedia.org/wiki/Stagflation
|
| Which in turn calls into question the following criticism:
|
| > But however you look at it, taking full credit for every single
| dollar of compensation as value creation-- as if Amazon, and not
| the US Mint, created those dollars, and as if the many, many
| millions of hours of labor consumed by the company in return were
| valueless-- is a ghastly overstatement.
|
| While I would never want to make it seem like Amazon is some sort
| of altruistic entity who simply makes the lives of those on it's
| payroll better, it is not as ghastly an overstatement as claimed.
| There is a reason recovery from the Great Depression involved
| _job creation_ through The New Deal and war-time production and
| not simply the US Treasury "creating those dollars".
|
| These kinds of economic inconsistencies continue throughout the
| post. In particular there seems to be a pervasive belief that
| Monetary Supply is finite/controlled by the Federal Reserve and
| therefore cannot be used to measure value creation:
|
| > But the value you created isn't the money. The money already
| existed and was floating around the economy long before you
| picked up the brush. The value you created was in the art, which
| is now in someone else's hands.
|
| This is a false premise. Dollar-value estimations of created
| value like GDP are often imperfect measurements, but they _do_
| exist; furthermore, they often exceed the nominal amount of
| financial notes in circulation. There also certainly is
| _additional value_ that isn 't captured by a dollar value, such
| as the value an owner places on a created piece of art, but that
| is not the same as _no_ monetary value created.
|
| I don't know who the author is, but even my limited grasp of
| economic theory makes me question the main thrust of their
| arguments. But I also know my grasp of economic theory is
| threadbare at best, so perhaps I am completely off base.
| ezrast wrote:
| You're not off base. I have no economic credentials and my
| discussion of the subject was simplistic. I appreciate your
| analysis.
|
| The point I was trying to make wasn't that dollars shouldn't be
| used to measure value, but that if you're going to do so, those
| dollars need to actually correspond to something that isn't
| just pieces of paper or bits in a bank computer. It's not
| particularly interesting for $450 dollars to change hands in a
| vacuum; the transaction is given meaning because it represents
| something about the painting that was created and sold.
|
| Similarly, velocity of money is given meaning because of the
| premise that each transaction functions to optimize resource
| distribution (i.e. a typical trade is in the interest of both
| parties). If the farmer and the mechanic from the Wikipedia
| article were to game the system by continuing to sell the same
| $40 of corn to each other over and over, velocity of money
| would technically increase, but then it would no longer
| meaningfully represent the health of the economy. The validity
| of the measure depends on this sort of double counting being
| precluded or accounted for (at least, in principle it does; I
| have no idea how much this kind of confounding factor shows up
| in real life).
|
| The biggest intended takeaway of my post wasn't even that the
| dollars being discussed don't correspond to anything, it's that
| they correspond to a bunch of different types of thing that
| don't sum together cleanly. That I had to make a bunch of finer
| economic points to get there was kind of an accident, and one
| that I might reframe the article to avoid if I were to rewrite
| it today.
| gshulegaard wrote:
| Hmmm! Well thank you for your response! I think that I find
| myself far more in agreement with this additional detail.
|
| > It's not particularly interesting for $450 dollars to
| change hands in a vacuum; the transaction is given meaning
| because it represents something about the painting that was
| created and sold.
|
| And this:
|
| > The biggest intended takeaway of my post wasn't even that
| the dollars being discussed don't correspond to anything,
| it's that they correspond to a bunch of different types of
| thing that don't sum together cleanly.
|
| In particular resonate with me. This intended meaning I
| (personally) lost in the economic semantics. Hopefully my
| comment about not wanting to paint Amazon as some altruistic
| entity alluded to my own personal nuanced feelings here, but
| to expand on something that I think is more aligned with the
| point you were trying to make:
|
| There is no doubt in my mind that the employment
| opportunities generated by Amazon provide value to the
| economy at large, but that doesn't mean that the value is as
| great as it could, would, or even should be. I think that
| there is a fair argument to be made that the labor practices
| at Amazon strays into labor exploitation and they only can do
| so since they benefit from an non-competitive market dynamic.
| And that bigger picture is potentially one of the bigger
| pieces of context which isn't captured by a simple payroll
| figure.
| btilly wrote:
| The one figure that this didn't quibble with is also wrong.
|
| Net profit definitely adds to shareholder value. But suppose that
| I make $30 billion, reinvest $20 billion, and create something
| that is worth $90 billion. My net profit is now $10 billion. But
| I actually added $100 billion in shareholder value!
|
| Jeff Bezos knows this, and knows this well. For many years Amazon
| ran at a net profit around $0 because it was reinvesting all of
| its profits in new businesses. So it was adding shareholder value
| like crazy! (And people who didn't understand this were walking
| around saying, "Why is Amazon worth so much? They don't even make
| a profit!")
|
| Of course doing this calculation correctly includes estimating
| the present value of the thing I created. And that is notoriously
| hard. So the proxy used in the real world is market cap. However
| market cap is volatile and subject to change based on the
| emotions of speculators. Certainly Amazon's actions last year are
| not the whole story for why they added $600 billion in market
| cap!
|
| So while net profit is the wrong measure, there is no measure
| that can be used which really is right for "added to shareholder
| value".
| jdmoreira wrote:
| It was also compounding the money that would otherwise have to
| be paid in taxes if it were not reinvested. He is an excellent
| CEO!
| B1FF_PSUVM wrote:
| Well, there's number of users and ARPU, or equivalently how
| much money flowed through ...
|
| I understand telecoms and others get warm fuzzies from that.
| hinkley wrote:
| The CEO class is still mostly old enough to remember corporate
| raiders, and of course we have the modern equivalent where
| groups buy companies, saddle them with debt, and exfiltrate the
| money long before the company goes bankrupt.
|
| Having enough liquid assets to prevent a hostile takeover is
| not the most profitable thing short-term but it does protect
| you. Amazon is so big it doesn't have that problem. It's simply
| too big for anyone to get their teeth around.
|
| I think this is another case of "you are not a FAANG, if you
| act like one it won't turn out the same for you."
| adventured wrote:
| The ownership position that Bezos had through most of its
| history was enough to make a hostile acquisition nearly
| impossible. That's how they survived the bad years post
| dotcom bubble without being acquired for relatively cheap.
| It's very hard to pull off a successful hostile takeover if
| you have prominent insiders with ~25-35% of the company and
| they don't want to sell. Certainly after they began reporting
| AWS results and the stock skyrocketed that was the end of any
| serious hostile acquisition risk (in the few years prior to
| the AWS numbers they were a $100-$175 billion market cap
| company, which eg Walmart could have afforded had regulators
| allowed it and insiders not made it nearly impossible).
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